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2015 Multi-Family Rental Rates Expected to Increase

March 17 | 2015

Expected Increase in Multi-Family Rental Rates

Commercial Property Executive reported that the 2015 Rent Forecast & Outlook report by Pierce-Eislen, a real estate data firm, projected that U.S. multifamily properties across all classes could experience more than 4 percent rent growth this year. The Pierce-Eislen report found that rents will not rise as fast as in 2014, when the multifamily sector had an average of 5.9 percent growth; however, this year's forecasted gains will be higher than those in 2013 and 2012, according to the Commercial Property Executive article.

Notwithstanding the slowing in growth rates projected compared to the 2014 high, the report predicted Class A and B+ assets are projected to increase 4.5 percent, and Class B and C assets are forecast to climb 5.1 percent this year.

According to the Commercial Property Executive summary of the Pierce-Eislen report, the San Francisco Bay Area had three of the top 10 strongest markets -- San Francisco itself, as well as the east and southern areas of the larger Bay Area. Other strong market areas included Denver, Seattle, Portland, Sacramento, southwest Florida, and both suburban and urban Atlanta.

The report wasn’t as bullish on other geographic areas. The mid-Atlantic region and the Carolinas were all expected to see rent growth of less than 2.5%, due (among other things) to the loss of government jobs following the sequester cutbacks. “There is widening income inequality and sluggish wage growth for low- and moderate-income workers, said Jack Kern, director of research and publications at Pierce-Eislen. Moreover, in that region “a doubling of inventory is coming online in 2015 vs. 2014.”

Generally, though, strong economic reports and expanding payrolls should help sustain rental rises and reduce vacancy rates in the multifamily sector. Despite a less than rosy outlook for much of the world, the World Bank’s semi-annual Global Economics Report forecast that the U.S. could see gross domestic product increase by 3.2 percent in 2015, a 0.2 percentage point gain from the previous prediction of 3 percent in June 2014.

Demographic Driving Rental Housing Demand

With the growth in the overall economy, the real estate market could generally benefit from greater demand for multifamily rental homes.

“The economy as we know it has changed substantially over this period (2012 to 2014), in some ways negatively and in others pointing to a brighter perspective,” the Pierce-Eislen report said, according to the Commercial Property Executive summary. "While the U.S. economy and the real estate market see different patterns and GDP does not track the rate of real property demand, we believe that growth is likely in both."

Some industry observers believe that certain demographic trends, especially the growth in the “millennial” group of people in the 20-30 year-old age bracket, are likely to help boost rental housing demand, according to Multi-Housing News Online. Although wages are increasing, millennials are still less likely to have the financial wherewithal needed to purchase their own homes, resulting in them likely staying in rental housing for longer periods than their parents may have.

“The recession used to be the driver of positive apartment trends, but these days demographics are in the driver's seat,” wrote Dees Stribling, contributing editor at Multi Housing News Online. “The next big population budge (a.k.a. millennials) are in their prime apartment-dwelling years, but not only that, they're supposedly more leery of homeownership than their parents or grandparents ever were.”

IMPORTANT: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Hyperlinks to sites outside of this domain do not constitute an approval or endorsement of content on the visited site.